Why would you describe this strategy as a fund to watch?
The fund offers a liquid means of diversifying into global real estate and benefiting from powerful secular themes influencing the asset class. The fund invests purely in listed property shares, and thus not exposed to the same liquidity constraints faced in many direct property funds today and in recent years.
We take a truly active approach to managing assets in the sector, with a differentiated approach to fundamental research and portfolio construction, focusing on opportunities across the asset class including alternatives and non-benchmark sectors. We place great emphasis on asset and management quality, but we also try to think and invest differently. We seek property types and sectors that offer long-term growth potential whilst leveraging our truly all-cap approach to give us an advantage.
We see real estate as a highly local business and have a global team ingrained in local markets, based in London, Singapore, and Chicago responsible for stock selection in their respective regions.
The result of this approach is reflected in the global team’s long-term track record.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The strategy seeks long-term capital appreciation by investing in REITs and property related companies listed on exchanges around the globe.
Our philosophy centres around a belief that the larger structural changes of digitalisation, shifting demographics, sustainability and what we term the ‘convenience lifestyle’ are creating winning and losing real estate sectors. We therefore believe real estate is a market in which a highly active approach to investment is required. We seek to combine a ‘top-down’ view on property fundamentals across different countries, cities and property types, with a disciplined ‘bottom-up’ valuation discipline to build a concentrated, high conviction portfolio reflecting our best ideas.
We target a concentrated portfolio of 50 to 60 holdings, selecting stocks from defined peer groups, using scoring systems evaluating property quality, management acumen and financial strength that are designed to identify relative value.
Managed by Guy Barnard, Tim Gibson and Greg Kuhl, the team consists of nine investment professionals based in London, Chicago and Singapore, who leverage their local insight and industry relationships to generate alpha. Site visits and meeting company management form a key component and this proximity allows us to form strong relationships with management and enhances our ability to engage with them.
What is your outlook for the fund and how are you positioning your portfolio as we move into 2024?
Real estate markets are facing headwinds from a slowing economy and more restrictive financial conditions. Against this backdrop the importance of management, asset and balance sheet quality are all coming to the fore again. Within the sector, real estate fundamentals are likely to reflect ongoing divergence across different property types in the years ahead, driven by the themes of shifting demographics, digitalisation, sustainability and the convenience lifestyle. While these themes are translating into opportunities within some property types and sub-sectors, it is also leading others into irrelevance, therefore it remains important, in our view, to be selective.
While the direct property market is taking time to adjust to the challenging macroeconomic landscape, the listed market has reacted already, resulting in shares trading at historically wide discounts to previous asset values and reflecting a highly uncertain environment. This may overlook the attractive, reliable and growing income streams that many real estate companies can generate for investors, as well as their ongoing access to capital. This is something which we expect to be rewarded over time.
Key areas of exposure today include the industrial and logistics sector, benefiting from the growth of e-commerce and onshoring, in addition to alternative sectors offering exposure to areas of structural growth such as data centres, cell towers and student accommodation.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
Theme – Digitalisation
Data centres have been the strongest property type year-to-date. Driven by the secular theme of digitalisation, the improving demand backdrop is being aided by the development of artificial intelligence, fuelling growing demand for more data storage, high computing power and cloud infrastructure. As a result we are seeing more pricing power, which should translate into strong earnings growth for data centres over the coming years.
Theme – Convenience lifestyle
Relative to other property types, logistics continues to benefit from strong demand, driven by structural tailwinds like ecommerce, nearshoring and companies increasing stock levels to counter supply chain issues. We continue to generally see high occupier demand, and subsequently, rental growth. The rise of ecommerce continues to be a long-term driver for the logistics sector despite some normalisation post the COVID boom in online sales. But ecommerce is not the only tailwind, more recent trends like nearshoring and increasing stock levels for companies with supply chain issues is also fuelling the need for more warehouses. With low vacancy rates, strong demand and barriers to supply from restrictive planning regimes, we believe the logistics sector remains well placed.
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